Hemant Kanoria, founder and the erstwhile director of Srei Infrastructure Finance, said the mis-categorisation of various transactions as fraud by auditors appointed by the administrator is likely to result in lowering of bid valuations and may ‘financially kill’ Srei.
BDO India LLP, the transaction auditor appointed by the administrator to the Srei group entities, has estimated close to ₹5,697 crore as fraudulent in nature as on September 30, 2022. The transaction audit is still in progress for other accounts and sources said the total value of fraudulent transactions could be in the range of ₹14,000 crore, including the ones reported so far.
According to Kanoria, BDO, which is not even a nationally recognised audit firm, has tagged over ₹13,000 crore transactions as fraudulent. All of these loans were previously audited and given the clean chit. They are also loans that are being paid on time with full interest. “It seems new accounting guidelines are being invented by the auditors, in conjunction with the administrator, to classify entire book of company as fraud. It is a systematic attempt to financially kill Srei,” Kanoria told businessline.
Sources close to Kanorias have maintained that it is the transaction auditor’s inability to comprehend the nature of structured transactions on financing which the company has been doing for the last three decades, which has led to almost all infrastructure and structured transactions being tagged as fraudulent.
On the bid front, the Committee of Creditor recently admitted bids of Arcelor Mittal, Edelweiss ARC and Capri Global, in addition to the ones submitted by Varde-Arena and Shon Randhawa, to improve valuations and seek higher upfront cash from the bidders.
The Kolkata bench of NCLT had recently further extended the time of completion of the insolvency process for two Srei entities till January 5, 2023, after the creditors requested for an extension as the new prospective resolution applicants, including National Asset Reconstruction Company (NARCL), sought additional time to complete their due diligence. The last date for submission of resolution plans by prospective resolution applicants was November 15.
“The statutory auditors have approved the entire infrastructure finance loan book of the company as fraud, which is absurd, and a testimony of the fact that auditors play by the gallery. There cannot be anything more ridiculous and without application of mind,” he said.
Citing one such example, he said, in the case of Ghaziabad Aligarh Expressways Pvt Ltd (GAEPL) fraud was filed in NCLT and then withdrawn, as full payment had come.
Interestingly, the Srei group administrator, had, in recently held annual general meeting, admitted that he was unsure as to why SIFL was admitted under IBC as it had no debt. Furthermore, the administrator categorically mentioned that the accounts being tagged as fraudulent is due to the requirement of some figment-of-imagination categorisation; they are actually not fraud as the assets have been created and payments being received.
Kanoria also questioned as to how the same transaction can be categorised differently under two different auditors using same accounting principles.
“It is extremely relevant to reflect the true and fair accounts, which is the solemn duty of the auditors. The critical question which arises is that can it be assumed that all the loans sanctioned and disbursed by the company over decades, audited by many sets of auditors, regulator, banker, professionals were all wrong,” he said.